Death and Taxes

We’ve all heard it before… “The only two certainties in life are death and taxes.” Currently everyone has their eye on both, as we’re watching the tax proposals, including estate tax changes, from the Biden administration, and wondering what’s coming and how we will all be affected. I’m going to give a brief update on where things are with that, but I think it’s important to remember that currently the tax proposals are just that… proposals. There is much negotiation to come. So while we can pay attention and do our best to be prepared for what’s to come, we must also realize that we cannot plan for everything. Yes, changes will come. And we will continue to re-evaluate as they do.

Other than the tax proposals we’ve been seeing all over the news lately, there is some tax legislation that has been passed. The American Rescue Plan was enacted and signed into law in March. This provides increased child tax credits paid in advance from July through December of this year. There are also some increases and changes to other tax credits like the child and dependent care credit and the earned income credit. The hope is that these changes will make a difference in child poverty.

You probably remember the Secure Act which passed in 2019, which changed the starting age of required IRA minimum distributions (RMDs) to 72 and changed the rules for how beneficiaries must take proceeds from inherited IRAs. Currently, there is another “Secure” act proposed, the Secure a Strong Retirement Act of 2021. This would change the starting age of RMDSs gradually from 72 to 75. It would also increase the amount of an RMD which can be a qualified charitable distribution (from $100,000 to $130,000). It also allows for increased “catch-up” contributions to IRAs for those who are 62-64 years of age.

The major tax proposal on everyone’s radar is Biden’s American Families Plan. While there are no changes to the estate and gift tax exemption amounts in this plan, significant changes affecting estate taxes are still included. The major provision is that unrealized capital gains on transfers at death would be subject to tax. There is an exception for the first $1 million of gain. Also in the plan, the top income tax rate would increase from 37% to 39.6% for those filing jointly with income over $509,300 (or single filers with income over $452,700). Capital gains for those with income over $1 million would be taxed as ordinary income, and the corporate tax rate would increase from 21% to 28%.

The American Families Plan also includes proposed changes to education, including two free years of pre-K and two free years of community college for everyone, as well as changes to funding for family and medical leave, child nutrition programs, and an extension of health insurance subsidies. Funding for increased auditing by the IRS is also proposed.
Biden’s American Jobs Plan, which involves tax proposals to help pay for investments in infrastructure, is also currently being negotiated. Corporate tax rates would increase, subsidies for fossil-fuel industries would end, and investments in “clean energy” would increase. There are also current negotiations happening to establish a global minimum corporate tax, with hopes of keeping corporations and jobs here in the US.

Again, all of this is proposed, and we have no idea what the final plan will be. Rest assured, we are keeping our eye on it and will adjust our tactics as needed when the time comes. And while we all know that death and taxes are both certainties, I also wanted to note that at least for now, summertime is also a certainty. So while we’re watching and waiting for further tax news, I hope we can also relish in the joys of the season, even if they include some days of stifling humid heat. I, for one, am vaccinated and basking in the joy of being around others again. I went to a Knights baseball game with my husband, and have to say that being in a crowd felt wonderful. I’m also trying to fill up my weekends with days by the pool with family, and with explorational walks through Charlotte. And if you didn’t already know this about me, I am a huge fan of live music. I have been missing concerts so much, and am excited that they are again on my calendar. I hope all of you are also enjoying the summertime in your own way.

As always, if you have any concerns about the current tax proposals or about your portfolio, you know our door is open.

Libby Anderson, CFP®